What is an Alienation Clause?
Alienation clauses are sometimes also called due on sale clauses. It is not uncommon for every mortgage contract to include one of these. This clause states that the borrower must pay the entire remaining balance of the mortgage loan upon selling the property.
More details about alienation clauses
This clause included within a mortgage contract helps the lender to retain the right to request for payment on the loan when the borrower on the loan no longer is the legal owner of the property for which the money was lent. This includes all principal monies and interest monies owed by the borrower as soon as the borrower finalizes the sale of the home or transfers the home to new ownership.
An alienation clause states that the borrower needs to pay off the balance of the current mortgage on the property before the title will be transferred to the new owner. This clause states that the borrower on the mortgage must comply whether the sale of the property or transfer is voluntary or involuntary on the borrower’s part.
How is this different from an acceleration clause?
Both alienation and acceleration clauses in a mortgage contract allow for the lending party to require a full balance pay off at a certain time. The difference between the two clauses lies in that an acceleration clause has to do with missed payments with no intention of selling the property when the payments were missed. There are also other factors that can enact an acceleration clause like dropping homeowner insurance, missing property tax payments, and even filing for bankruptcy.
The alienation clause is in place simply to ensure that the lender will receive full payment when the property is no longer in the borrower’s possession. This clause also helps to prevent the lender from the allowance of the new buyer assuming the current mortgage on the property.
There can be some exceptions to alienation clauses
It is very uncommon for a mortgage lender not to enforce this clause but there are some instances where a borrower is able to transfer the current mortgage on a property to a new owner without enacting alienation.
These special instances can include a borrower passing away and the property being transferred to the joint owner or a new relative inheriting the property. The property could also be transferred during a divorce or separation. A property could be transferred in a living trust situation. If the owner takes on a second mortgage like a home equity loan. If the current loan on the property is an assumable mortgage this means that the property was mortgaged prior to the 1970s and does not have an alienation clause in place.
Alienation clauses are standard with almost 100% of the loans in today’s real estate world. This helps to ensure that a lender will receive the agreed-upon amount of repayment when taking the risk to loan out money.
For more information on buying or selling a home in Snohomish County please contact us anytime.
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